News & Views

12/06/17

Pro-health groups back tax reform bill

Two pro-health organizations have expressed their support for the proposed Tax Reform Acceleration and Inclusion Act (TRAIN), particularly the bill’s provisions on fuel tax adjustments that they said would help curb the worsening air pollution responsible for lung cancer and other deadly respiratory ailments.

In separate statements, the Philippine College of Chest Physicians (PCCP) and the Clean Air Philippines Movement, Inc. (CAPMI) said the additional revenues to be collected from the proposed higher taxes on petroleum products must be used to fund health care programs and other initiatives to improve the physical health and well-being of Filipinos.

CAPMI and PCCP also lauded the Department of Finance (DOF), which helped craft TRAIN, for pursuing this health-friendly tax policy.

“It is our view that the imposition of excise tax on gasoline and diesel fuel can help promote the health of the people,” provided that the funds to be collected from this effort would be used to (1) improve the health of Filipinos and (2) support research on alternative fuels and studies in the Philippine setting to better define the disease burden resulting from combustion of fossil fuels, PCCP said.

Indirectly, combustible fuels also contribute to climate change, it added.

CAPMI, meanwhile said: “We applaud the Department of Finance’s (DOF) effort to address this growing issue through a tax policy that would help curb behavior of Filipinos. We look forward to working with them and provide technical assistance towards our shared goal of a Clean Air Philippines.”

“Their proposal has reinforced our hope that this administration is taking on a more prominent, inter-agency approach to relevant and pressing issues, including those that concern the environment,” it said.

“With TRAIN, we appreciate the effort of the government to increase fuel excise, particularly on diesel, consumed by a large majority of Filipinos as a preference to other cleaner fuel substitutes due to its relatively cheap and affordable price,” CAPMI said. “In fact, the use of diesel and diesel-powered vehicles has increase significantly in the past decades. We think that the introduction of this fuel tax is a significant step towards creating an economy that do not depend largely on dirty fuel.”

The proposed TRAIN as outlined in House Bill 5636 provides for a three-phase adjustment in the excise taxes for petroleum products, such as diesel, which will be taxed P3 per liter in 2018, an additional P2 in 2019 and P1 more in 2020.

Under the bill, 40 percent of the yearly incremental revenues from the petroleum excise tax would go to a new fund for social benefits for would-be affected vulnerable sectors for a period of four years.

HB 5636 was approved on third and final reading by a 246-9 vote with one abstention last May 31 by the House of Representatives before the Congress adjourned sine die.

This bill had consolidated the original tax reform bill—HB 4774—filed by Quirino Rep. Dakila Carlo Cua with 54 other tax-related measures. TRAIN is the first package of the Duterte administration’s Comprehensive Tax Reform Program (CTRP)

The original tax reform bill provided for the indexation to inflation of the excise tax on fuel but was removed in HB 5636.

HB 5636 was passed after President Duterte had certified the bill as urgent, given that it was designed to help provide a steady revenue stream to his government’s ambitious high—and inclusive—growth agenda anchored on record spending on infrastructure, human capital and social protection for the poor and other vulnerable sectors.

In his letter to Senate President Aquilino Pimentel III and Speaker Pantaleon Alvarez, President Duterte said, “The benefits to be derived from this tax reform measure will sustainably finance the Government’s envisioned massive investments in infrastructure thereby encouraging economic activity and job creation, as well as fund the desired increase in the public budget for health, education and social programs to alleviate poverty.”

Finance Secretary Carlos Dominguez III, who had earlier asked the President to certify the tax reform bill as urgent, said in his memorandum to the Chief Executive that this TRAIN bill is “expected to help reduce poverty rate from 21.6 percent in 2015 to 14 percent in 2022, lifting some six million Filipinos out of poverty, and helping the country achieve upper middle-income country status where per capita gross national income increases from $3,500 in 2015 to at least $4,100 by 2022.”

In the same memo, Dominguez told Mr. Duterte of the “dire consequences” of the Congress’ failure to write a tax reform law. “The government’s strategy to embark on an aggressive expenditure program by raising deficit spending to three percent of the Gross Domestic Product (GDP) would lead to an “unsustainable fiscal position,” which, in turn, could trigger a credit rating downgrade possibly costing the government an extra P30 billion in annual debt servicing and P100 billion more in higher borrowing costs for the public.,” he said.

Financial institutions have welcomed the House approval of the tax reform bill. Deutsche Bank said that “Beyond its fundamental economic benefits, [the tax reform bill’s] passage would send investors a strong signal that the administration has the political will to pass unpopular laws to institute long-term structural economic reforms.

Nomura said “the timeliness of the vote and the decisive result again underscore the strong priority that Duterte places on the economic reform agenda and his strong control over Congress.”

In a sign of positive business sentiment for this tax reform package, the Philippine Stock Exchange (PSE) index went up by 90.37 points or 1.15 percent to close at 7,927.49 last June 1, or the day after the House had approved HB 5636 on third and final reading.

On June 5, the PSE closed at its highest level for this year at 8,001.38 points, and PSE president Ramon Monzon was quoted in media reports as saying that this breach of the 8,000 level was driven by “optimism over the developments in the DOF’s CTRP.”